The first two handset vendors to report fourth-quarter and full 2007 earnings last week both forecast 10% growth for their sector in 2008, on top of healthy unit volume growth last year.
That seemed to reassure industry analysts that macro-economic trends now capturing headlines may be slow to impact handset demand this year.
“Near-term fundamentals seem OK for handsets,” said analyst Mark McKechnie at American Technology Research, in a note to investors last week. “The big questions (are): ‘How bad is the global macro (economy), how long and deep will it be and what will the impact be on handsets?'”
McKechnie said he was reassured by the results reported by Samsung Electronics Co. Ltd., the world’s No. 2 handset maker, and by Sony Ericsson Mobile Communications, the No. 4 player.
Analyst Martin Garner at Ovum concurred.
“In anticipating this round of handset results, we feared that there could be signs of consumer uptake of mobile phones slowing in developed markets because of tougher economic conditions,” Garner said. “These results show some price pressure, but demand is still strong.”
Growth strong, but below forecasts
Samsung reported that fourth-quarter shipments reached 46.3 million units, up 41% year-on-year, while Sony Ericsson said it shipped nearly 31 million handsets in the same period, up 18% year-on-year. Volume growth is closely watched by Wall Street, which tends to value that metric on par with revenue, earnings and average selling prices.
Those volumes were slightly below analysts’ expectations, analyst Ittai Kidron at Oppenheimer & Co. Inc. wrote in a note to investors last week, but Kidron also was positive on overall demand this year.
The news appeared to put analysts somewhat at ease as the other top handset vendors prepared to report their results this week. Motorola Inc., which slipped to the No. 3 position last year, reports earnings Jan. 23. Nokia Corp., which gained a slice of Motorola’s market share last year (as did Samsung), reports its results on Jan. 24, along with the No. 5 vendor, LG Electronics Co. Ltd. Nokia has also forecasted approximately 10% growth for 2008, which would grow 2007’s expected volume of about 1.1 billion units shipped industry-wide to more than 1.2 billion this year.
Samsung’s handset business thrived, as did its flat-panel TV division, shoring up other businesses, including a weak period for its memory chips, the company said. Samsung’s telecom division, largely dependent on handset sales, reported revenue of nearly $21 billion in 2007, up 7% from the prior year. Operating profit was $2.3 billion, an 11% margin, up 22% year-on-year.
Samsung attributed the volume and revenue increases to the strong sales of premium phones – including its Ultra Edition handsets – in developed markets, while its shipments to emerging markets declined between the third and fourth quarters to 33% of shipments, from 37%. Garner said that 2008 would give Samsung an opportunity to increase the distance between its position and those of Motorola and Sony Ericsson.
Sony Ericsson’s strength in the fourth quarter and going forward, according to Avian Securities L.L.C. analyst Tero Kuittinen, is its recent work in colors, materials and finishes (CMF), its product portfolio expansion and its effective definition of the mobile handset into music (Walkman) and imaging (Cybershot) models.
Raid tempers news
The good news for Samsung was offset by reports that South Korean government investigators last week raided the home office of the parent corporation’s chairman as well as Samsung’s headquarter offices, looking for evidence in a corruption probe based on allegations that the company has made illegal payments to government officials. Samsung does not comment on pending legal matters.
